Hidden Requirements of Government Grants

Many early stage life science companies have relied on government grants, such as SBIR and STTR grants, as a way to stay afloat in the current economic environment. Government grants reimburse companies for expenses incurred in performing research and development during a challenging time when funding from venture capital is scarce. However, nothing is free and even government grants can come with strings attached.

The Terms and Conditions section of the Notice of Awards usually spells out several requirements, which can be overlooked if you are not looking closely. Some common hidden requirements of government grants are:

Audit Requirement: The audit requirement is usually found as a reference to the Code of Federal Regulations (Title 45 Part 74.26), which stipulates that a commercial organization is subject to an audit if it expends over $500,000 of federal grants during its fiscal year. This code section offers the commercial organization the option to perform an audit under OMB A-133 or Government Auditing Standards (Yellow Book). A company’s circumstances will dictate which option will work best for them. It’s important to review your circumstances with an accounting professional when deciding which option is best for the company.

Audit Due Date: Once the type of audit is determined, the company has to file the audit report within nine months after the end of its fiscal year.

Cost Principles: The fine print of the grant will likely indicate certain cost principles to follow. The costs principles provide guidance on which costs are allowed or disallowed under the terms of the grant. In addition, the cost principles could indicate how costs are substantiated and documented.

Reporting Requirements: The terms and conditions of the grant will likely indicate reporting requirements (both financial and nonfinancial) on how funds are spent and which outcomes were achieved under the project. The due dates for the reporting requirements may vary by grant. It is important to file the appropriate reports timely to be in compliance with the grant.

The devil is in the details so make sure to review all aspects of the fine print that your grants may have to identify any hidden requirements. If you need assistance with this or have specific questions, our professionals are ready to assist you.

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